Electricity Tariff Hike Looms As Discos Apply For Rate Review

Electricity Tariff Hike Looms As Discos Apply For Rate Review

The Federal Government has announced that eleven successor electricity companies have submitted applications for a review of their electricity tariffs. The Nigeria Electricity Regulatory Commission (NERC) published a notice disclosing this information.

The request for a rate review is based on the need to incorporate changes in macroeconomic factors and other elements that impact the quality of service, operations, and sustainability of the companies.

NERC stated that the electricity distribution companies (Discos) have made the rate review requests in accordance with the provisions of Section 116 (1) and 2(a&b) of the Electricity Act 2023 and other existing regulations.

Recently, there was public outcry and resistance when some electricity distribution companies attempted to increase tariffs from July 1. The Nigerian Labour Congress (NLC) criticized the proposed tariff hike, calling it insensitive and harsh on consumers who were already dealing with the hardship caused by the removal of petrol subsidy.

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Due to the public uproar, the planned tariff increase was postponed. However, it may still take place following the notice issued by NERC on Thursday, revealing that the Discos have now applied for a rate review.

NERC announced that it will conduct a Rate Case Hearing to examine the applications and make a ruling as part of the rule-making process and in accordance with the powers conferred by the Electricity Act.

The Commission has invited the general public and stakeholders to provide comments or representations on the rate review applications by the distribution licensees. Interested parties are advised to review the excerpts of the Rate Review Applications submitted to the Commission by the respective licensees. The deadline for submitting comments or representations is July 20, 2023.

The tariff review process by NERC is designed to undertake major reviews every five years. Additionally, extraordinary tariff reviews are triggered when a Disco requires additional investment beyond the permitted capital expenditure or when there are unforeseen operational, legal, or regulatory costs that need to be reasonably passed on to consumers. Minor reviews are also conducted every six months to adjust tariffs based on changes in gas prices, foreign exchange rates, generation output, and inflation.

One of the Discos, Ikeja Electricity Distribution Company, stated in its rate review application that the tariffs consistently fall below cost-reflective levels, causing pressure on both the Discos and the government to subsidize the tariff gaps. This undermines the Discos’ ability to fulfill their obligations under the Performance Agreements and Vesting Contract and worsens the liquidity challenges in the electricity sector.

The Abuja Electricity Distribution Company also requested that the Commission consider the amended end-user rate, as it aligns with the business realities necessary for continuity and sustainability.